Department

of the

Treasury

Internal

Revenue

Service

Publication 551

(Rev. December 2022)

Cat. No. 15094C

Basis of Assets


Get forms and other information faster and easier at:
•	*IRS.gov*	(English)		•	*IRS.gov/Korean* (한국어)
•	*IRS.gov/Spanish*		(Español)	•		(Pусский)
					*IRS.gov/Russian*
•	*IRS.gov/Chinese*		(中文)	•			(Tiếng Việt)
					*IRS.gov/Vietnamese*

Contents

Future Developments. . . . . . . . . . . . 1

What’s New. . . . . . . . . . . . . . . . . . 1

Reminder . . . . . . . . . . . . . . . . . . . . 1

Introduction. . . . . . . . . . . . . . . . . . 2

Cost Basis . . . . . . . . . . . . . . . . . . . 2

Stocks and Bonds. . . . . . . . . . . . 2

Real Property . . . . . . . . . . . . . . . 2

Business Assets. . . . . . . . . . . . . 3

Allocating the Basis. . . . . . . . . . . 4

Adjusted Basis. . . . . . . . . . . . . . . . 4

Increases to Basis. . . . . . . . . . . . 5

Decreases to Basis. . . . . . . . . . . 5

Basis Other Than Cost. . . . . . . . . . . 7

Property Received for Services . . . . . 7

Taxable Exchanges. . . . . . . . . . . 7

Nontaxable Exchanges. . . . . . . . . 8

Property Transferred From a

Spouse. . . . . . . . . . . . . . . . 9

Property Received as a Gift . . . . . . . 9

Inherited Property. . . . . . . . . . . 10

Property Changed to Business

or Rental Use . . . . . . . . . . . . 10

How To Get Tax Help. . . . . . . . . . . 11

Glossary. . . . . . . . . . . . . . . . . . . 13

Index. . . . . . . . . . . . . . . . . . . . . 15

Future Developments

For the latest information about developments related to Pub. 551, such as legislation enacted after this publication was published, go to IRS.gov/Pub551.

What’s New

Uniform capitalization rules. For tax years beginning in 2022, small businesses are not subject to the uniform capitalization rules if the average annual gross receipts are $27 million or less for the 3 preceding tax years and the business isn't a tax shelter. See Uniform Capi-talization Rules, later.

Reminder

Photographs of missing children. The Inter-nal Revenue Service is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you rec-ognize a child.

Jan 17, 2023

Introduction

Basis is the amount of your investment in prop-erty for tax purposes. Use the basis of property to figure depreciation, amortization, depletion, and casualty losses. Also use it to figure gain or loss on the sale or other disposition of property. You must keep accurate records of all items that affect the basis of property so you can make these computations.

This publication is divided into the following sections.

Cost Basis
Adjusted Basis
Basis Other Than Cost

The basis of property you buy is usually its cost. You may also have to capitalize (add to basis) certain other costs related to buying or producing the property.

Your original basis in property is adjusted (increased or decreased) by certain events. If you make improvements to the property, in-crease your basis. If you take deductions for de-preciation or casualty losses, reduce your ba-sis.

You can't determine your basis in some as-sets by cost. This includes property you receive as a gift or inheritance. It also applies to prop-erty received in an involuntary conversion and certain other circumstances.

Comments and suggestions. We welcome your comments about this publication and sug-gestions for future editions.

You can send us comments through IRS.gov/FormComments Or, you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments and suggestions as we revise our tax forms, instruc-tions, and publications. Don’t send tax ques-tions, tax returns, or payments to the above ad-dress.

Getting answers to your tax questions. If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS In-teractive Tax Assistant page at IRS.gov/ Help/ITA where you can find topics by using the search feature or viewing the categories listed.

Getting tax forms, instructions, and pub- lications. Go to IRS.gov/Forms to download current and prior-year forms, instructions, and publications.

Ordering tax forms, instructions, and publications. Go to IRS.gov/OrderForms to order current forms, instructions, and publica-tions; call 800-829-3676 to order prior-year forms and instructions. The IRS will process your order for forms and publications as soon as possible. Don’t resubmit requests you’ve al-ready sent us. You can get forms and publica-tions faster online.

Page 2

Useful Items

You may want to see:

Publication

463	Travel, Gift, and Car Expenses
523	Selling Your Home
525	Taxable and Nontaxable Income
527	Residential Rental Property
530	Tax Information for Homeowners
535	Business Expenses
537	Installment Sales
544	Sales and Other Dispositions of
	Assets
547	Casualties, Disasters, and Thefts
550	Investment Income and Expenses
559	Survivors, Executors, and
	Administrators
587	Business Use of Your Home
946	How To Depreciate Property

Form (and Instructions)

706 United States Estate (and Generation-Skipping Transfer) Tax Return

706-A United States Additional Estate Tax Return

8594 Asset Acquisition Statement

See How To Get Tax Help near the end of this publication for information about getting publi-cations and forms.

Cost Basis

Terms you may need to know (see Glossary):

Business assets

Real property

Unstated interest

The basis of property you buy is usually its cost. The cost is the amount you pay in cash, debt obligations, other property, or services. Your cost also includes amounts you pay for the fol-lowing items.

Sales tax.
Freight.
Installation and testing.
Excise taxes.
Legal and accounting fees (when they must be capitalized).

Revenue stamps.
Recording fees.
Real estate taxes (if assumed for the seller).

You may also have to capitalize (add to basis) certain other costs related to buying or produc-ing property.

Loans with low or no interest. If you buy property on a time -payment plan that charges little or no interest, the basis of your property is

your stated purchase price, minus the amount considered to be unstated interest. You gener-ally have unstated interest if your interest rate is less than the applicable federal rate. For more information, see Unstated Interest and Original Issue Discount in Pub. 537.

Purchase of a business. When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. Allocate the price among the various assets, including any section 197 intangibles. See Allocating the Ba-sis, later.

Stocks and Bonds

The basis of stocks or bonds you buy is gener-ally the purchase price plus any costs of pur-chase, such as commissions and recording or transfer fees. If you get stocks or bonds other than by purchase, your basis is usually deter-mined by the fair market value (FMV) or the pre-vious owner's adjusted basis of the stock.

You must adjust the basis of stocks for cer-tain events that occur after purchase. See Stocks and Bonds in chapter 4 of Pub. 550 for more information on the basis of stock.

Identifying stock or bonds sold. If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. If you buy and sell securities at various times in varying quantities and you can't adequately identify the shares you sell, the basis of the se-curities you sell is the basis of the securities you acquired first. For more information about iden-tifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Pub. 550.

Mutual fund shares. If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. For more information, see Pub. 550.

Real Property

Real property, also called real estate, is land and generally anything built on or attached to it. If you buy real property, certain fees and other expenses become part of your cost basis in the property.

Real estate taxes. If you pay real estate taxes the seller owed on real property you bought, and the seller didn't reimburse you, treat those taxes as part of your basis. You can't deduct them as taxes.

If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Don't include that amount in the basis of the property. If you didn't reimburse the seller, you must reduce your basis by the amount of those taxes.

Settlement costs. Your basis includes the set-tlement fees and closing costs for buying prop-erty. You can't include in your basis the fees and costs for getting a loan on property. A fee

Publication 551 (December 2022)

for buying property is a cost that must be paid even if you bought the property for cash.

The following items are some of the settle-ment fees or closing costs you can include in the basis of your property.

Abstract fees (abstract of title fees).
Charges for installing utility services.
Legal fees (including title search and prep-aration of the sales contract and deed).
Recording fees.
Surveys.
Transfer taxes.
Owner's title insurance.
Any amounts the seller owes that you agree to pay, such as back taxes or inter-est, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

Settlement costs don't include amounts placed in escrow for the future payment of items such as taxes and insurance.

The following items are some settlement fees and closing costs you can't include in the basis of the property.

1. Casualty insurance premiums.

2. Rent for occupancy of the property before closing.

3. Charges for utilities or other services rela-ted to occupancy of the property before closing.

4. Charges connected with getting a loan. The following are examples of these charges.

a. Points (discount points, loan origina-tion fees).

b. Mortgage insurance premiums.

c. Loan assumption fees.

d. Cost of a credit report.

e. Fees for an appraisal required by a lender.

5. Fees for refinancing a mortgage.

If these costs relate to business property, items

(1) through (3) are deductible as business ex-penses. Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan.

Points. If you pay points to obtain a loan (in-cluding a mortgage, second mortgage, line of credit, or a home equity loan), don't add the points to the basis of the related property. Gen-erally, you deduct the points over the term of the loan. For more information on how to deduct points, see Points in chapter 4 of Pub. 535.

Points on home mortgage. Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. If certain requirements are met, you can deduct the points in full for the year in which they're paid. Reduce the basis of your home by any seller-paid points. For more information, see Points in Pub. 936, Home Mortgage Inter-est Deduction.

Assumption of mortgage. If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes

Publication 551 (December 2022)

the amount you pay for the property plus the amount to be paid on the mortgage.

Example. If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000.

Constructing assets. If you build property or have assets built for you, your expenses for this construction are part of your basis. Some of these expenses include the following costs.

Land.
Labor and materials.
Architect's fees.
Building permit charges.
Payments to contractors.
Payments for rental equipment.
Inspection fees.

In addition, if you own a business and use your employees, material, and equipment to build an asset, don't deduct the following expenses. You must include them in the asset's basis.

Employee wages paid for the construction work, reduced by any employment credits allowed.
Depreciation on equipment you own while it's used in the construction.

Operating and maintenance costs for equipment used in the construction.
The cost of business supplies and materi-als used in the construction.

Don't include the value of your own la-

bor, or any other labor you didn't pay CAUTION for, in the basis of any property you construct.

Business Assets

Terms you may need to know (see Glossary):

Amortization

Capitalization

Depletion

Depreciation

Fair market value (FMV)

Going concern value

Goodwill

Intangible property

Modified Accelerated Cost Recovery

System (MACRS) property

Personal property

Recapture

Section 179 deduction

Section 197 intangibles

Tangible property

If you purchase property to use in your busi-ness, your basis is usually its actual cost to you. If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. In certain circumstances, you may be subject to the uniform capitalization rules (dis-cussed next).

Uniform Capitalization Rules

The uniform capitalization rules specify the costs you add to basis in certain circumstances.

Activities subject to the rules. You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. However, see Exceptions below.

Produce real or tangible personal property for use in the business or activity.
Produce real or tangible personal property for sale to customers.

Acquire property for resale.

You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Treat property pro-duced for you under a contract as produced by you up to the amount you pay or costs you oth-erwise incur for the property. Tangible personal property includes films, sound recordings, video tapes, books, or similar property.

Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current ex-pense. You recover these costs through deduc-tions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dis-pose of the property.

Any cost you can't use to figure your taxable income for any tax year isn't subject to the uni-form capitalization rules.

Example. If you incur a business meal ex-pense for which your deduction would be limi-ted to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. The nondeductible part of the cost isn't subject to the uniform capitalization rules.

More information. For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Pub. 538, Accounting Periods and Methods.

Exceptions. For tax years beginning in 2022, you're not subject to the uniform capitalization rules if your average annual gross receipts are $27 million or less for the 3 preceding tax years and you're not a tax shelter. See section 263A(i).

In addition, the following are not subject to the uniform capitalization rules.

Property you produce that you don't use in your trade, business, or activity conducted for profit.
Qualified creative expenses you pay or in-cur as a freelance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return.

Property you produce under a long-term contract, except for certain home construc-tion contracts.
Research and experimental expenses de-ductible under section 174 of the Internal Revenue Code.
Before 2018, costs for personal property acquired for resale if your (or your prede-cessor's) average annual gross receipts for the 3 previous tax years don't exceed $10 million.

Page 3

For other exceptions to the uniform capitaliza-tion rules, see section 1.263A-1(b) of the regu-lations.

For information on the special rules that ap-ply to costs incurred in the business of farming, see chapter 6 in Pub. 225, Farmer's Tax Guide.

Intangible Assets

Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. The basis of an intangible asset is usually the cost to buy or create it. If you ac-quire multiple assets, for example, an ongoing business for a lump sum, see Allocating the Ba-sis, later, to figure the basis of the individual as-sets. The basis of certain intangibles can be amortized. See chapter 8 of Pub. 535 for infor-mation on the amortization of these costs.

Patents. The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, draw-ings, working models, and attorneys' and gov-ernmental fees. If you deduct the research and experimental expenditures as current business expenses, you can't include them in the basis of the patent. The value of the inventor's time spent on an invention isn't part of the basis.

Copyrights. If you're an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. Don't include the value of your time as the author, or any other person's time you didn't pay for.

Franchises, trademarks, and trade names. If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can de-duct your payments as a business expense.

Allocating the Basis

If you buy multiple assets for a lump sum, allo-cate the amount you pay among the assets you receive. You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. See Trade or Business Acquired below.

Group of Assets Acquired

If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation will gener-ally be accepted. However, see Trade or Busi-ness Acquired next.

Trade or Business Acquired

If you acquire a trade or business, allocate the consideration paid to the various assets ac-quired. Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) re-ceived. Allocate the remaining consideration to

Page 4

the other business assets received in propor-tion to (but not more than) their FMV in the fol-lowing order.

1. Certificates of deposit, U.S. government securities, foreign currency, and actively traded personal property, including stock and securities.

2. Accounts receivable, other debt instru-ments, and assets you mark to market at least annually for federal income tax pur-poses.

3. Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business.

4. All other assets except section 197 intan-gibles, goodwill, and going concern value.

5. Section 197 intangibles except goodwill and going concern value.

6. Goodwill and going concern value (whether or not they qualify as section 197 intangibles).

Agreement. The buyer and seller may enter into a written agreement as to the allocation of any consideration or the FMV of any of the as-sets. This agreement is binding on both parties unless the IRS determines the amounts are not appropriate.

Reporting requirement. Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Use Form 8594 to pro-vide this information. The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred.

More information. See Sale of a Business in chapter 2 of Pub. 544 for more information.

Land and Buildings

If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings.

Figure the basis of each asset by multiplying the lump sum by a fraction. The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. If you're not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes.

Demolition of building. Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. Don't claim the costs as a current deduction.

Modification of building. A modification of a building won't be treated as a demolition if both the following conditions are satisfied.

75% or more of the existing external walls of the building are retained in place as in-ternal or external walls.
75% or more of the existing internal struc-tural framework of the building is retained in place.

If the building is a certified historic structure, the modification must also be part of a certified rehabilitation.

If these conditions are met, add the costs of the modifications to the basis of the building.

Subdivided lots. If you buy a tract of land and subdivide it, you must determine the basis of each lot. This is necessary because you must figure the gain or loss on the sale of each indi-vidual lot. As a result, you don't recover your entire cost in the tract until you have sold all of the lots.

To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. The numerator is the FMV of the lot and the de-nominator is the FMV of the entire tract.

Future improvement costs. If you're a de-veloper and sell subdivided lots before the de-velopment work is completed, you can (with IRS consent) include in the basis of the proper-ties sold an allocation of the estimated future cost for common improvements. See Revenue Procedure 92-29, 1992-1 C.B. 748, for more in-formation, including an explanation of the pro-cedures for getting consent from the IRS.

Use of erroneous cost basis. If you made a mistake in figuring the cost basis of subdivi-ded lots sold in previous years, you can't cor-rect the mistake for years for which the statute of limitations (generally, 3 tax years) has ex-pired. Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots.

Example. You bought a tract of land to which you assigned a cost of $15,000. You sub-divided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale.

Several years later, you determine that your original basis in the tract was $22,500 and not $15,000. You sold eight lots using $8,000 of ba-sis in years for which the statute of limitations has expired. You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). You can't refigure the basis of the eight lots sold in tax years barred by the statute of limitations.

Adjusted Basis

Before figuring gain or loss on a sale, ex-change, or other disposition of property, or fig-uring allowable depreciation, depletion, or am-ortization, you must usually make certain adjustments to the basis of the property. The re-sult of these adjustments to the basis is the ad-justed basis.

Publication 551 (December 2022)

Table 1. Examples of Increases and Decreases to Basis

	Increases to Basis				Decreases to Basis
								of subsidies for energy
	Capital improvements:				Exclusion from income
		Putting an addition on your home			conservation measures
		Replacing an entire roof			Casualty or theft loss deductions and
		Paving your driveway
		Installing central air conditioning			insurance reimbursements
		Rewiring your home			Certain vehicle credits
	Assessments for local improvements:
					Section 179 deduction
		Water connections
		Sidewalks
		Roads			Depreciation
	Casualty losses:
		Restoring damaged property			Nontaxable corporate distributions
	Legal fees:

		Cost of defending and perfecting a title
	Zoning costs

Increases to Basis				assessment to your property's basis. In this ex-
Increase the basis of any property by all items				ample, the assessment is a depreciable asset.
				Deducting vs. Capitalizing Costs
properly added to a capital account. These in-
clude the cost of any improvements having a
useful life of more than 1 year.				Don't add to your basis costs you can deduct as
		Rehabilitation expenses also increase basis.		current expenses. For example, amounts paid
				for incidental repairs or maintenance that are
However, you must subtract any rehabilitation
				deductible as business expenses can't be
credit allowed for these expenses before you
				added to basis. However, you can choose ei-
add them to your basis. If you have to recapture
				ther		to deduct or to capitalize certain other
any of the credit, increase your basis by the re-
				costs. If you capitalize these costs, include
captured amount.
				them in your basis. If you deduct them, don't in-
		If you make additions or improvements to		clude them in your basis. See					Uniform Capitali-

business property, keep separate accounts for				zation Rules			, earlier.

them. Also, you must depreciate the basis of					The costs you can choose to deduct or to
each according to the depreciation rules that
would apply to the underlying property if you				capitalize include the following.
had placed it in service at the same time you					•	Carrying charges, such as interest and
placed the addition or improvement in service.						taxes, that you pay to own property, except
For more information, see Pub. 946.						carrying charges that must be capitalized
		The following items increase the basis of			•	under the uniform capitalization rules.
						Research and experimentation costs.
property.						Intangible drilling and development costs
	•	The cost of extending utility service lines to			•	for oil, gas, and geothermal wells.
	•	the property.			•	Exploration costs for new mineral deposits.
		Impact fees.				Mining development costs for a new min-
	•	Legal fees, such as the cost of defending			•	eral deposit.
	•	and perfecting title.			•	Costs of establishing, maintaining, or in-
		Legal fees for obtaining a decrease in an				creasing the circulation of a newspaper or
		assessment levied against property to pay			•	other periodical.
	•	for local improvements.				Costs of removing architectural and trans-
		Zoning costs.				portation barriers to people with disabilities
	•	The capitalized value of a redeemable				and the elderly. If you claim the disabled
		ground rent.				access credit, you must reduce the amount
Assessments for						you deduct or capitalize by the amount of
						the credit.
Local Improvements					For more information about deducting or
Increase the basis of property by assessments
				capitalizing costs, see chapter 7 in Pub. 535.
for items such as paving roads and building			Decreases to Basis
assessed. Don't deduct them as taxes. How-
ditches that increase the value of the property
ever, you can deduct as taxes charges for				The following are some items that reduce the
maintenance, repairs, or interest charges rela-
ted to the improvements.				basis of property.
					•	Section 179 deduction.
		*Example.* Your city changes the street in			•	Deduction under section 179D for certain
front of your store into an enclosed pedestrian						energy efficient commercial building prop-
mall and assesses you and other affected land-					•	erty.
owners for the cost of the conversion. Add the						Nontaxable corporate distributions.

Publication 551 (December 2022)

Deductions previously allowed (or allowa-ble) for amortization, depreciation, and de-pletion.
Exclusion of subsidies for energy conser-vation measures.

Certain vehicle credits.
Residential energy credits.
Postponed gain from sale of home.
Investment credit (part or all) taken.
Advanced manufacturing investment credit taken.

Casualty and theft losses and insurance reimbursement.

Certain canceled debt excluded from in-come.

Rebates treated as adjustments to the sales price.

Easements.
Gas-guzzler tax.
Adoption tax benefits.
Credit for employer-provided child care.
Partial disposition of MACRS property, whether you elect to recognize the partial disposition or are required to recognize it.

Some of these items are discussed next.

Casualties and Thefts

If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance.

If you dispose of a portion of MACRS prop-erty because of a loss sustained from a casu-alty event, decrease the basis in the property by any insurance or other reimbursement and by any deductible loss on the disposed portion of the property that isn't covered by insurance. The deductible loss is generally the decrease in the FMV of the property resulting from the casu-alty event, but is limited to the adjusted basis of the disposed portion of the MACRS property.

You must increase your basis in the property by the amount you spend on repairs that sub-stantially prolong the life of the property, in-crease its value, or adapt it to a different use. To make this determination, compare the re-paired property to the property before the casu-alty. If the amount you spent didn't otherwise improve the property, then it's deductible as a repair and doesn't affect basis. For more infor-mation on casualty and theft losses, see Pub. 547.

Easements

The amount you receive for granting an ease-ment is generally considered to be a sale of an interest in real property. It reduces the basis of the affected part of the property. If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the ex-cess as a recognized gain.

Vehicle Credits

Unless you elect not to claim the qualified vehi-cle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of

Page 5

each qualified vehicle by certain amounts repor-ted. For more information on available credits, see Form 8834, Qualified Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit; and the related in-structions.

Gas-Guzzler Tax

Decrease the basis in your car by the gas-guz-zler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ulti-mate use. If the car is imported, the 1-year pe-riod begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use.

Section 179 Deduction

If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the de-duction. For more information about the section 179 deduction, see Pub. 946.

Exclusion of Subsidies for Energy Conservation Measures

You can exclude from gross income any sub-sidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. Re-duce the basis of the property for which you re-ceived the subsidy by the excluded amount. For more information on this subsidy, see Pub. 525.

Depreciation

Decrease the basis of property by the deprecia-tion you deducted, or could have deducted, on your tax returns under the method of deprecia-tion you chose. If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. If you didn't take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken.

Unless a timely election is made not to de-duct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the spe-cial depreciation allowance you deducted or could have deducted.

If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess de-preciation you deducted that actually reduced your tax liability for the year.

In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any deprecia-tion capitalized under the uniform capitalization rules.

Page 6

For information on figuring depreciation, see Pub. 946.

If you're claiming depreciation on a business vehicle, see Pub. 463. If the car isn't used more than 50% for business during the tax year, you may have to recapture excess depreciation. In-clude the excess depreciation in your gross in-come and add it to your basis in the property. For information on the computation of excess depreciation, see chapter 4 in Pub. 463.

Canceled Debt Excluded From Income

If a debt you owe is canceled or forgiven, other than as a gift or bequest, you must generally in-clude the canceled amount in your gross in-come for tax purposes. A debt includes any in-debtedness for which you're liable or which attaches to property you hold.

You can exclude canceled debt from in-come in the following situations.

1. Debt canceled in a bankruptcy case or when you're insolvent.

2. Qualified farm debt.

3. Qualified real property business debt (pro-vided you're not a C corporation).

If you exclude from income canceled debt un-der situation (1) or (2), you may have to reduce the basis of your depreciable and nondeprecia-ble property. However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount.

For more information about canceled debt in a bankruptcy case or during insolvency, see Pub. 908, Bankruptcy Tax Guide. For more in-formation about canceled debt that is qualified farm debt, see chapter 3 in Pub. 225. For more information about qualified real property busi-ness debt, see chapter 5 in Pub. 334, Tax Guide for Small Business.

Postponed Gain From Sale of Home

If you postponed gain from the sale of your main home before May 7, 1997, you must re-duce the basis of your new home by the post-poned gain. For more information on the rules for the sale of a home, see Pub. 523.

Adoption Tax Benefits

If you claim an adoption credit for the cost of im-provements you added to the basis of your home, decrease the basis of your home by the credit allowed. This also applies to amounts you received under an employer's adoption assis-tance program and excluded from income. For more information, see Form 8839, Qualified Adoption Expenses.

Employer-Provided Child Care

If you're an employer, you can claim the em-ployer-provided child care credit on amounts you paid or incurred to acquire, construct, reha-bilitate, or expand property used as part of your

qualified child care facility. You must reduce your basis in that property by the credit claimed. For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services.

Disposition of a Portion of MACRS Property

If you sell a portion of MACRS property (a MACRS asset), you must reduce the adjusted basis of the asset by the adjusted basis of the portion sold. Use your records to determine which portion of the asset was sold, the date the asset was placed in service, the unadjusted basis of the portion sold, and its adjusted basis. See the partial disposition rules in Regulations section 1.168(i)-8 for more detail. The adjusted basis of the portion sold is used to determine the gain or loss realized on the sale. Also see Pub. 544.

If you physically abandon a portion of MACRS property (a MACRS asset) and you elect to recognize the loss on the abandonment by reporting the loss on your tax return, you must reduce the adjusted basis of the MACRS asset by the adjusted basis of the portion aban-doned. Use your records to determine which portion of the asset was abandoned, the date the asset was placed in service, the unadjusted basis of the portion abandoned, and its adjus-ted basis. See the partial disposition rules in Regulations section 1.168(i)-8 for more detail. Also see Example 2 and Example 3 below.

Adjustments to Basis Examples

Example 1. In January 2017, you paid $80,000 for real property to be used as a fac-tory. You also paid commissions of $2,000 and title search and legal fees of $600. You alloca-ted the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. Immediately, you spent $20,000 in remodeling the building before you placed it in service. You were allowed de-preciation of $14,526 for the years 2017 through 2021. In 2020, you had a $5,000 casu-alty loss from a storm that wasn't covered by in-surance on the building. You claimed a deduc-tion for this loss. You spent $5,500 to repair the damages and to otherwise improve the build-ing. The adjusted basis of the building on Janu-ary 1, 2022, is figured as follows:

Original cost of building including fees and		$72,275
commissions . . . . . . . . . . . . . . . . . . . . . .
Adjustments to basis:
Add:		20,000
Improvements . . . . . . . . . . . . . . . . .
Repair of damages . . . . . .	........	5,500
Subtract:		$97,775
	$14,526
Depreciation . . . . . . . . . .
Deducted casualty	5,000	19,526
loss . . . . . . . . . . . . . . . .
Adjusted basis on January 1, 2022 . . . .		$78,249

The basis of the land, $10,325, remains un-changed. It's not affected by any of the above adjustments.

Publication 551 (December 2022)

Example 2. You own a building that you pur-chased in 1990 for $75,000. You use the build-ing in your business. The building is a MACRS asset. You removed and abandoned the roof on the building and replaced it with a new roof. You make the partial disposition election to recog-nize loss on the abandonment of the old roof by reporting the loss on your timely filed tax return. The loss is the adjusted basis of the roof as of the first day of the tax year of the abandonment. Using your records, you determine that the abandoned roof was placed in service in 1990 with the building, the unadjusted basis of the building attributable to the roof is $5,000, and after you deducted depreciation of $3,500 on the roof, its adjusted basis as of the first day of the tax year of the abandonment is $1,500. Re-port the $1,500 ordinary loss in Part II of Form 4797. In your depreciation records, you must reduce the unadjusted basis of the building, $75,000, by the unadjusted basis of the roof, $5,000, as well as reduce the accumulated de-preciation of the building by the accumulated depreciation on the roof, $3,500. You must also capitalize the cost of the replacement roof and depreciate it as a separate asset from the build-ing.

Example 3. You own a bulldozer that you pur-chased 2 years ago for $25,000. You use the bulldozer in your business. The bulldozer is a MACRS asset. You removed and replaced the bucket on the bulldozer with a new bucket. You make the partial disposition election to recog-nize loss on the abandonment of the old bucket by reporting the loss on your timely filed tax re-turn. The loss is the adjusted basis of the bucket as of the first day of the tax year of the abandonment. Using your records, you deter-mine that the abandoned bucket was placed in service with the bulldozer, the unadjusted basis of the bucket is $5,000, and after you deducted depreciation of $3,800 on the bucket, the adjus-ted basis of the bucket as of the first day of the tax year of the abandonment is $1,200. Report the $1,200 ordinary loss in Part II of Form 4797. In your depreciation records, you must reduce the unadjusted basis of the bulldozer, $25,000, by the unadjusted basis of the bucket, $5,000, as well as reduce the accumulated depreciation of the bulldozer by the accumulated deprecia-tion on the bucket, $3,800. You must also capi-talize the cost of the replacement bucket and begin depreciating it as a separate asset from the bulldozer.

Basis Other Than Cost

There are many times when you can't use cost as basis. In these cases, the FMV or the adjus-ted basis of property may be used. Adjusted ba-sis is discussed earlier.

FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Sales of similar property on or about the same date may be helpful in figuring the property's FMV.

Publication 551 (December 2022)

Property Received for Services

If you receive property for services, include the property's FMV in income. The amount you in-clude in income becomes your basis. If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the con-trary.

Bargain Purchases

A bargain purchase is a purchase of an item for less than its FMV. If, as compensation for serv-ices, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Your basis in the property is its FMV (your purchase price plus the amount you include in income).

If the difference between your purchase price and the FMV represents a qualified em-ployee discount, don't include the difference in income. However, your basis in the property is still its FMV. See Employee Discounts in Pub. 15-B.

Restricted Property

If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it be-comes substantially vested unless you make the election discussed later. Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture.

There is substantial risk of forfeiture when the rights to full enjoyment of the property de-pend on the future performance of substantial services by any person.

When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income.

Example. Your employer gives you stock for services performed under the condition that you'll have to return the stock unless you com-plete 5 years of service. The stock is under a substantial risk of forfeiture and isn't substan-tially vested when you receive it. You don't re-port any income until you have completed the 5 years of service that satisfy the condition.

FMV Figure the FMV of property you received without considering any restriction except one that by its terms will never end.

Example. You received stock from your employer for services you performed. If you want to sell the stock while you're still em-ployed, you must sell the stock to your em-ployer at book value. At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. This is a restriction that by its terms will never end and you must consider it when you figure the FMV.

Election. You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. If you make this choice, the substantially vested rules don't apply. Your basis is the amount you paid plus the amount you included in income.

See the discussion of Restricted Property in Pub. 525 for more information.

Taxable Exchanges

A taxable exchange is one in which the gain is taxable or the loss is deductible. A taxable gain or deductible loss is also known as a recog-nized gain or loss. If you receive property in ex-change for other property in a taxable ex-change, the basis of property you receive is usually its FMV at the time of the exchange. A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged.

Example. You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. You must report a taxable gain of $3,000 for the land. The tractor has a basis of $6,000.

Involuntary Conversions

If you receive property as a result of an involun-tary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the ba-sis of the converted property.

Similar or related property. If you receive re-placement property similar or related in service or use to the converted property, the replace-ment property's basis is the old property's basis on the date of the conversion. However, make the following adjustments.

1. Decrease the basis by the following.

a. Any loss you recognize on the conver-sion.

b. Any money you receive that you don't spend on similar property.

2. Increase the basis by the following.

c. Any gain you recognize on the con-version.

d. Any cost of acquiring the replacement property.

Money or property not similar or related. If you receive money or property not similar or re-lated in service or use to the converted prop-erty, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion.

Example. The state condemned your prop-erty. The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. You realized a gain of $5,000 ($31,000 − $26,000). You bought replacement property similar in use to the converted property for $29,000. You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the

Page 7

payment from the state. Your gain not recog-nized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. The basis of the new property is figured as follows:

Cost of replacement property . . . . . . . . . . .	$29,000
Minus: Gain not recognized . . . . . . . . . . . .	3,000
Basis of the replacement property	$26,000

Allocating the basis. If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs.

Example. The state in the previous exam-ple condemned your unimproved real property and the replacement property you bought was improved real property with both land and build-ings. Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs.

More information. For more information about condemnations, see Involuntary Conversions in Pub. 544. For more information about casualty and theft losses, see Pub. 547.

Nontaxable Exchanges

Terms you may need to know (see Glossary):

Intangible property

Like-kind property

Personal property

Real property

A nontaxable exchange is an exchange in which you're not taxed on any gain and you can't deduct any loss. If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transfer-red. A nontaxable gain or loss is also known as an unrecognized gain or loss.

Like-Kind Exchanges

The exchange of property for the same kind of property may qualify as a nontaxable exchange under section 1031 of the Internal Revenue Code. Beginning after 2017, nontaxable like-kind exchange treatment under section 1031 applies only to exchanges of real property held for use in a trade or business or for invest-ment, other than real property held primarily for sale. Before 2017, section 1031 also applied to certain exchanges of personal or intangible property. Nontaxable like-kind exchange treat-ment under section 1031 will still apply to a qualifying exchange of personal or intangible property if the taxpayer disposed of the ex-changed property on or before December 31, 2017, or received replacement property on or before that date.

To qualify as a like-kind exchange, you must hold for business or investment purposes both the real property you transfer and the real prop-erty you receive. There must also be an

Page 8

exchange of like-kind property. For more infor-mation, see Like-Kind Exchanges in Pub. 544.

The basis of the property you receive is the same as the basis of the property you gave up.

Example. You exchange real estate (adjus-ted basis $50,000, FMV $80,000) held for in-vestment for other real estate (FMV $80,000) held for investment. Your basis in the new prop-erty is the same as the basis of the old property ($50,000).

Exchange expenses. Exchange expenses are generally the closing costs you pay. They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. Add them to the basis of the like-kind property re-ceived.

Property plus cash. If you trade property in a like-kind exchange and also pay money, the ba-sis of the property received is the basis of the property you gave up increased by the money you paid.

Example. You exchange a parcel of real property (adjusted basis of $30,000) for another parcel of real property (FMV $75,000) and pay $40,000. Your basis in the newly acquired real property is $70,000 (the $30,000 adjusted basis of the old parcel plus the $40,000 paid).

Special rules for related persons. If a like-kind exchange takes place directly or indi-rectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Each person must report any gain or loss not recognized on the original exchange. Each person reports it on the tax return filed for the year in which the later disposition occurs. If this rule applies, the basis of the property received in the original ex-change will be its FMV (at the time of the ex-change).

These rules generally don't apply to the fol-lowing kinds of property dispositions.

Dispositions due to the death of either rela-ted person.

Involuntary conversions.
Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax.

Related persons. Generally, related per-sons are ancestors, lineal descendants, broth-ers and sisters (whole or half), and a spouse.

For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc.), see Nondeductible Loss in chapter 2 of Pub. 544.

Partially Nontaxable Exchange

A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. The basis of the property you receive is the same as the basis of the property you gave up, with the following ad-justments.

1. Decrease the basis by the following amounts.

a. Any money you receive.

b. Any loss you recognize on the ex-change.

2. Increase the basis by the following amounts.

a. Any additional costs you incur.

b. Any gain you recognize on the ex-change.

If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange.

Example. You trade a parcel of real prop-erty with an adjusted basis of $60,000 for an-other parcel of real property with an FMV of $52,000 and $10,000 cash. You realize a gain of $2,000 (the FMV of the parcel of real prop-erty received plus the cash minus the adjusted basis of real property you traded ($52,000 + $10,000 – $60,000)). You must include all $2,000 of the gain in income as recognized gain because the gain is less than the cash received. Your basis in the newly acquired parcel of real property is as follows:

Adjusted basis of old property . . . . . . . . . . .	$60,000
Minus: Cash received (adjustment 1(a)) . . . .	10,000
Plus: Gain recognized (adjustment 2(b)) . . . .	$50,000
	2,000
Basis of new property . . . . . . . . . . .	$52,000

Allocation of basis. Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. The rest is the basis of the like property.

Example. You had an adjusted basis of $15,000 in real estate you held for investment. You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. The truck is unlike property. You realized a gain of $1,500 ($16,500 − $15,000). This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjus-ted basis of the real estate you traded ($12,500

$3,000 + $1,000 – $15,000). You include in income (recognize) all $1,500 of the gain be-cause it's less than the FMV of the unlike prop-erty plus the cash received. Your basis in the properties you received is figured as follows:

Adjusted basis of real estate transferred . . .	$15,000
Minus: Cash received (adjustment 1(a)) . . .	1,000
Plus: Gain recognized (adjustment 2(b)) . . .	$14,000
	1,500
Total basis of properties received	$15,500

Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). This is the truck's FMV. The rest ($12,500) is the basis of the real estate.

Sale and Purchase

If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange.

Publication 551 (December 2022)

Example. You have real property held for productive use in your trade or business. Its ad-justed basis is $500,000 and its FMV is $750,000. You're interested in replacing the property with real estate containing a building worth $900,000. Ordinarily, you would swap properties and pay the $150,000 difference in FMVs. Your basis would then be $650,000 ($150,000 cash paid plus $500,000 adjusted basis in your old property).

You want your new real property to have a larger basis for depreciation, so you arrange to sell your old property to the other party. You then buy the new property from that individual for $900,000. However, if the sale and pur-chase are reciprocal and mutually dependent, you're treated as having exchanged your old property for the new property. In that case, your basis for depreciation for the new property is $650,000, the same as if you had exchanged the old property for the new property.

Partial Business Use of Property

If you have real property, a portion of which is used for business and a portion of which is used for personal use, and you exchange it in a nontaxable exchange for real property to be used wholly or partly in your business, the basis of the property you receive is figured separately for the business and nonbusiness use parts. The part of the property used for business is an exchange of like-kind property. The per-sonal-use part of the property is property on which gain is recognized.

Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. Deduct the depreciation you took or could have taken from the adjusted basis of the business part. Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property.

You're deemed to have received, in ex-change for the nonbusiness part, an amount equal to its FMV on the date of the exchange. The basis of the property you acquired is the to-tal basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part.

If the nonbusiness part of the property TIP transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. For more infor-

mation, see Pub. 523.

Property Transferred From a Spouse

The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is inci-dent to divorce) is the same as your spouse's adjusted basis. However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabili-ties to which the property is subject, are more than the adjusted basis of the property transfer-red.

Publication 551 (December 2022)

If the property transferred to you is a series E, series EE, or series I U.S. savings bond, the transferor must include in income the interest accrued to the date of transfer. Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. For more information on these bonds, see Pub. 550.

At the time of the transfer, the transferor must give you the records necessary to deter-mine the adjusted basis and holding period of the property as of the date of transfer.

For more information, see Pub. 504, Di-vorced or Separated Individuals.

Property

Received as a Gift

To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it.

FMV Less Than Donor's Adjusted Basis

If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your ba-sis depends on whether you have a gain or a loss when you dispose of the property. Your ba-sis for figuring gain is the same as the donor's adjusted basis plus or minus any required ad-justment to basis while you held the property. Your basis for figuring loss is its FMV when you received the gift plus or minus any required ad-justment to basis while you held the property (see Adjusted Basis, earlier).

If you use the donor's adjusted basis for fig-uring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or dispo-sition of the property.

Example. You received an acre of land as a gift. At the time of the gift, the land had an FMV of $8,000. The donor's adjusted basis was $10,000. After you received the land, no events occurred to increase or decrease your basis. If you sell the land for $12,000, you'll have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. If you sell the land for $7,000, you'll have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss.

If the sales price is between $8,000 and $10,000, you have neither gain nor loss. For in-stance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain.

Business property. If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduc-tion is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property.

FMV Equal to or More Than Donor's Adjusted Basis

If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you re-ceived the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift.

Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deduc-tions on business property, you must increase or decrease your basis by any required adjust-ments to basis while you held the property. See Adjusted Basis, earlier.

Gift received before 1977. If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. However, don't increase your basis above the FMV of the gift at the time it was given to you.

Example 1. You were given a house in 1976 with an FMV of $21,000. The donor's ad-justed basis was $20,000. The donor paid a gift tax of $500. Your basis is $20,500, the donor's adjusted basis plus the gift tax paid.

Example 2. If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift.

Gift received after 1976. If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Figure the increase by multiplying the gift tax paid by a fraction. The numerator of the fraction is the net increase in value of the gift, and the denominator is the amount of the gift.

The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. The amount of the gift is its value for gift tax pur-poses after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. For information on the gift tax, see Pub. 559, Survivors, Executors, and Adminis-trators.

Example. In 2022, you received a gift of property from your mother that had an FMV of $50,000. Her adjusted basis was $20,000. The amount of the gift for gift tax purposes was $34,000 ($50,000 minus the $16,000 annual exclusion). She paid a gift tax of $6,880. Your basis, $26,054, is figured as follows:

Fair market value . . . . . . . . . . . . . . . . .	$50,000
Minus: Adjusted basis . . . . . . . . . . . . . .	20,000
. . . . . . . . . . . . . . .Netincreaseinvalue	$30,000
Gift tax paid
.....................	$6,880
Multiplied by ($30,000 ÷ $34,000) . . . . . .	0.88
. . . . .Gifttaxduetonetincreaseinvalue	$6,054
Adjusted basis of property to your	20,000
mother . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .Yourbasisintheproperty	$26,054

Page 9

Inherited Property

The basis of property inherited from a decedent is generally one of the following.

1. The FMV of the property at the date of the individual's death.

2. The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. For in-formation on the alternate valuation date, see the Instructions for Form 706.

3. The value under the special-use valuation method for real property used in farming or a closely held business if chosen for es-tate tax purposes. This method is dis-cussed later.

4. The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. For information on a qualified conservation easement, see the Instructions for Form 706.

If a federal estate tax return doesn't have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes.

For more information, see the Instructions for Form 706.

Appreciated property. The above rule doesn't apply to appreciated property you re-ceive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Your basis in this property is the same as the dece-dent's adjusted basis in the property immedi-ately before his or her death, rather than its FMV. Appreciated property is any property whose FMV on the day it was given to the dece-dent is more than its adjusted basis.

Community Property

In community property states (Arizona, Califor-nia, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married individuals are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviv-ing spouse, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property inter-est must be includible in the decedent's gross estate, whether or not the estate must file a re-turn.

For example, you and your spouse owned community property that had a basis of $80,000. When your spouse died, half the FMV of the community interest was includible in your spouse's estate. The FMV of the community in-terest was $100,000. The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). The basis of the other half to your spouse's heirs is also $50,000.

For more information on community prop-erty, see Pub. 555, Community Property.

Page 10

Property Held by Surviving Tenant

The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety.

Example. John and Jim owned, as joint tenants with right of survivorship, business property purchased for $30,000. John furnished two-thirds of the purchase price and Jim fur-nished one-third. Depreciation deductions al-lowed before John's death were $12,000. Un-der local law, each had a half interest in the income from the property. At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includible in John's estate. Jim’s basis in the property at the date of John's death is figured as follows:

Interest Jim bought with his
own funds—1/3 of $30,000	$10,000
cost . . . . . . . . . . . . . . . . .
Interest Jim received on John's
death—2/3 of	40,000	$50,000
$60,000FMV ..........
Minus: 1/2 of $12,000 depreciation			6,000
before John's death . . . . . . .	......
Jim's basis at the date of John's		$44,000
death . . . . . . . . . . . .	....

If Jim hadn't contributed any part of the pur-chase price, Jim’s basis at the date of John's death would be $54,000. This is figured by sub-tracting from the $60,000 FMV the $6,000 de-preciation allocated to Jim's half interest before the date of death.

If under local law Jim had no interest in the income from the property and contributed no part of the purchase price, Jim’s basis at John's death would be $60,000, the FMV of the prop-erty.

Qualified Joint Interest

Include one-half of the value of a qualified joint interest in the decedent's gross estate. It doesn't matter how much each spouse contrib-uted to the purchase price. Also, it doesn't mat-ter which spouse dies first.

A qualified joint interest is any interest in property held by married individuals as either of the following.

Tenants by the entirety.
Joint tenants with right of survivorship if the married couple are the only joint tenants.

Basis. As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Decrease the cost by any deductions allowed to you for depreciation and depletion. Increase the re-duced cost by your basis in the half you inheri-ted.

Farm or Closely Held Business

Under certain conditions, when a person dies, the executor or personal representative of that person's estate can choose to value the quali-fied real property on other than its FMV. If so, the executor or personal representative values the qualified real property based on its use as a

farm or its use in a closely held business. If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate.

Special-use valuation. If you're a qualified heir who received special-use valuation prop-erty, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Post-death apprecia-tion is the property's FMV on the date of distri-bution minus the property's FMV either on the date of the individual's death or the alternate valuation date. Figure all FMVs without regard to the special-use valuation.

You can elect to increase your basis in spe-cial-use valuation property if it becomes subject to the additional estate tax. This tax is assessed if, within 10 years after the death of the dece-dent, you transfer the property to a person who isn't a member of your family or the property stops being used as a farm or in a closely held business.

To increase your basis in the property, you must make an irrevocable election and pay in-terest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. If you meet these requirements, in-crease your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. The increase in your basis is considered to have occurred immediately be-fore the event that results in the additional es-tate tax.

You make the election by filing with Form

706-A a statement that does all of the following.

Contains your name, address, and tax-payer identification number and those of the estate.
Identifies the election as an election under section 1016(c) of the Internal Revenue Code.
Specifies the property for which the elec-tion is made.

Provides any additional information re-quired by the Instructions for Form 706-A.

For more information, see the Instructions for Form 706 and the Instructions for Form 706-A.

Property Changed to Business or Rental Use

If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. An example of changing property held for per-sonal use to business use would be renting out your former main home.

Basis for depreciation. The basis for depreci-ation is the lesser of the following amounts.

The FMV of the property on the date of the change, or

Your adjusted basis on the date of the change.

Publication 551 (December 2022)

Example. Several years ago, you paid $160,000 to have your home built on a lot that cost $25,000. You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Because land isn't depreci-able, you include only the cost of the house when figuring the basis for depreciation.

Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it's less than your adjusted basis ($178,000).

Sale of property. If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you're figuring gain or loss.

Gain. The basis for figuring a gain is your adjusted basis when you sell the property.

Example. Assume the same facts as in the previous example except that you sell the prop-erty at a gain after being allowed depreciation deductions of $37,500. Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500).

Loss. Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss.

Example. Assume the same facts as in the previous example, except that you sell the prop-erty at a loss after being allowed depreciation deductions of $37,500. In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it's less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500).

How To Get Tax Help

If you have questions about a tax issue; need help preparing your tax return; or want to down-load free publications, forms, or instructions, go to IRS.gov to find resources that can help you right away.

Preparing and filing your tax return. After receiving all your wage and earnings state-ments (Forms W-2, W-2G, 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment compensation statements (by mail or in a digital format) or other government payment statements (Form 1099-G); and interest, dividend, and retirement statements from banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if

Publication 551 (December 2022)

you qualify for free tax preparation, or hire a tax professional to prepare your return.

Free options for tax preparation. Go to IRS.gov to see your options for preparing and filing your return online or in your local commun-ity, if you qualify, which include the following.

Free File. This program lets you prepare and file your federal individual income tax return for free using brand-name tax-prep-aration-and-filing software or Free File filla-ble forms. However, state tax preparation may not be available through Free File. Go to IRS.gov/FreeFile to see if you qualify for free online federal tax preparation, e-filing, and direct deposit or payment options.

VITA. The Volunteer Income Tax Assis-tance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities, and limited-Eng-lish-speaking taxpayers who need help preparing their own tax returns. Go to IRS.gov/VITA, download the free IRS2Go app, or call 800-906-9887 for information on free tax return preparation.

TCE. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors. Go to IRS.gov/TCE, download the free IRS2Go app, or call

888-227-7669 for information on free tax return preparation.

MilTax. Members of the U.S. Armed Forces and qualified veterans may use Mil-Tax, a free tax service offered by the De-partment of Defense through Military One-Source. For more information, go to MilitaryOneSource (MilitaryOneSource.mil/ MilTax).

Also, the IRS offers Free Fillable Forms, which can be completed online and then filed electronically regardless of in-come.

Using online tools to help prepare your re-turn. Go to IRS.gov/Tools for the following.

The Earned Income Tax Credit Assistant (IRS.gov/EITCAssistant) determines if you’re eligible for the earned income credit (EIC).

The Online EIN Application (IRS.gov/EIN) helps you get an employer identification number (EIN) at no cost.
The Tax Withholding Estimator (IRS.gov/ W4app) makes it easier for you to estimate the federal income tax you want your em-ployer to withhold from your paycheck. This is tax withholding. See how your with-holding affects your refund, take-home pay, or tax due.

The First-Time Homebuyer Credit Account Look-up (IRS.gov/HomeBuyer) tool pro-vides information on your repayments and account balance.

The Sales Tax Deduction Calculator

(IRS.gov/SalesTax) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040).

Getting answers to your tax ques-tions. On IRS.gov, you can get up-to-date information on current

events and changes in tax law.

IRS.gov/Help: A variety of tools to help you get answers to some of the most common tax questions.
IRS.gov/ITA: The Interactive Tax Assistant, a tool that will ask you questions and, based on your input, provide answers on a number of tax law topics.

IRS.gov/Forms: Find forms, instructions, and publications. You will find details on the most recent tax changes and interac-tive links to help you find answers to your questions.

You may also be able to access tax law in-formation in your electronic filing software.

Need someone to prepare your tax return? There are various types of tax return preparers, including enrolled agents, certified public ac-countants (CPAs), accountants, and many oth-ers who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer wisely. A paid tax preparer is:

Primarily responsible for the overall sub-stantive accuracy of your return,

Required to sign the return, and
Required to include their preparer tax iden-tification number (PTIN).

Although the tax preparer always signs the return, you're ultimately responsible for provid-ing all the information required for the preparer to accurately prepare your return. Anyone paid to prepare tax returns for others should have a thorough understanding of tax matters. For more information on how to choose a tax pre-parer, go to Tips for Choosing a Tax Preparer on IRS.gov.

Coronavirus. Go to IRS.gov/Coronavirus for links to information on the impact of the corona-virus, as well as tax relief available for individu-als and families, small and large businesses, and tax-exempt organizations.

Employers can register to use Business Services Online. The Social Security Adminis-tration (SSA) offers online service at SSA.gov/ employer for fast, free, and secure online W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement.

IRS social media. Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our highest priority. We use these tools to share public information with you. Don’t post your so-cial security number (SSN) or other confidential information on social media sites. Always pro-tect your identity when using any social net-working site.

The following IRS YouTube channels pro-vide short, informative videos on various tax-re-lated topics in English, Spanish, and ASL.

Youtube.com/irsvideos.

Page 11

Watching IRS videos. The IRS Video portal (IRSVideos.gov) contains video and audio pre-sentations for individuals, small businesses, and tax professionals.

Online tax information in other languages. You can find information on IRS.gov/ MyLanguage if English isn’t your native lan-guage.

Free Over-the-Phone Interpreter (OPI) Serv-ice. The IRS is committed to serving our multi-lingual customers by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), other IRS offices, and every VITA/TCE return site. The OPI Service is accessible in more than 350 languages.

Accessibility Helpline available for taxpay-ers with disabilities. Taxpayers who need in-formation about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and future accessibility products and services available in alternative media formats (for example, braille, large print, audio, etc.). The Accessibility Help-line does not have access to your IRS account. For help with tax law, refunds, or account-rela-ted issues, go to IRS.gov/LetUsHelp.

Note. Form 9000, Alternative Media Prefer-ence, or Form 9000(SP) allows you to elect to receive certain types of written correspondence in the following formats.

Standard Print.

Large Print.

Braille.

Audio (MP3).

Plain Text File (TXT).

Braille Ready File (BRF).

Disasters. Go to Disaster Assistance and Emergency Relief for Individuals and Businesses to review the available disaster tax relief.

Getting tax forms and publications. Go to IRS.gov/Forms to view, download, or print all the forms, instructions, and publications you may need. Or, you can go to IRS.gov/ OrderForms to place an order.

Getting tax publications and instructions in eBook format. You can also download and view popular tax publications and instructions (including the Instructions for Form 1040) on mobile devices as eBooks at IRS.gov/eBooks.

Note. IRS eBooks have been tested using Apple's iBooks for iPad. Our eBooks haven’t been tested on other dedicated eBook readers, and eBook functionality may not operate as in-tended.

Access your online account (individual tax-payers only). Go to IRS.gov/Account to se-

Page 12

curely access information about your federal tax account.

View the amount you owe and a break-down by tax year.

See payment plan details or apply for a new payment plan.

Make a payment or view 5 years of pay-ment history and any pending or sched-uled payments.
Access your tax records, including key data from your most recent tax return, and transcripts.
View digital copies of select notices from the IRS.

Approve or reject authorization requests from tax professionals.

View your address on file or manage your communication preferences.

Tax Pro Account. This tool lets your tax pro-fessional submit an authorization request to ac-cess your individual taxpayer IRS online account. For more information, go to IRS.gov/ TaxProAccount.

Using direct deposit. The fastest way to re-ceive a tax refund is to file electronically and choose direct deposit, which securely and elec-tronically transfers your refund directly into your financial account. Direct deposit also avoids the possibility that your check could be lost, stolen, destroyed, or returned undeliverable to the IRS. Eight in 10 taxpayers use direct deposit to re-ceive their refunds. If you don’t have a bank ac-count, go to IRS.gov/DirectDeposit for more in-formation on where to find a bank or credit union that can open an account online.

Getting a transcript of your return. The quickest way to get a copy of your tax transcript is to go to IRS.gov/Transcripts. Click on either “Get Transcript Online” or “Get Transcript by Mail” to order a free copy of your transcript. If you prefer, you can order your transcript by call-ing 800-908-9946.

Reporting and resolving your tax-related identity theft issues.

Tax-related identity theft happens when someone steals your personal information to commit tax fraud. Your taxes can be af-fected if your SSN is used to file a fraudu-lent return or to claim a refund or credit.
The IRS doesn’t initiate contact with tax-payers by email, text messages (including shortened links), telephone calls, or social media channels to request or verify per-sonal or financial information. This in-cludes requests for personal identification numbers (PINs), passwords, or similar in-formation for credit cards, banks, or other financial accounts.

Go to IRS.gov/IdentityTheft, the IRS Iden-tity Theft Central webpage, for information on identity theft and data security protec-tion for taxpayers, tax professionals, and businesses. If your SSN has been lost or stolen or you suspect you’re a victim of tax-related identity theft, you can learn what steps you should take.

Get an Identity Protection PIN (IP PIN). IP PINs are six-digit numbers assigned to tax-payers to help prevent the misuse of their SSNs on fraudulent federal income tax re-

turns. When you have an IP PIN, it pre-vents someone else from filing a tax return with your SSN. To learn more, go to IRS.gov/IPPIN.

Ways to check on the status of your refund.

Go to IRS.gov/Refunds.
Download the official IRS2Go app to your mobile device to check your refund status.
Call the automated refund hotline at 800-829-1954.

Note. The IRS can’t issue refunds before mid-February for returns that claimed the EIC or the additional child tax credit (ACTC). This ap-plies to the entire refund, not just the portion as-sociated with these credits.

Making a tax payment. Go to IRS.gov/ Payments for information on how to make a payment using any of the following options.

IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

Debit or Credit Card: Choose an approved payment processor to pay online or by phone.
Electronic Funds Withdrawal: Schedule a payment when filing your federal taxes us-ing tax return preparation software or through a tax professional.

Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.
Check or Money Order: Mail your payment to the address listed on the notice or in-structions.
Cash: You may be able to pay your taxes with cash at a participating retail store.
Same-Day Wire: You may be able to do same-day wire from your financial institu-tion. Contact your financial institution for availability, cost, and time frames.

Note. The IRS uses the latest encryption technology to ensure that the electronic pay-ments you make online, by phone, or from a mobile device using the IRS2Go app are safe and secure. Paying electronically is quick, easy, and faster than mailing in a check or money or-der.

What if I can’t pay now? Go to IRS.gov/ Payments for more information about your op-tions.

Apply for an online payment agreement

(IRS.gov/OPA) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once you complete the online process, you will receive imme-diate notification of whether your agree-ment has been approved.

Use the Offer in Compromise Pre-Qualifier to see if you can settle your tax debt for less than the full amount you owe. For more information on the Offer in Compro-mise program, go to IRS.gov/OIC.

Filing an amended return. Go to IRS.gov/ Form1040X for information and updates.

Publication 551 (December 2022)

Checking the status of your amended re-turn. Go to IRS.gov/WMAR to track the status of Form 1040-X amended returns.

Note. It can take up to 3 weeks from the date you filed your amended return for it to show up in our system, and processing it can take up to 16 weeks.

Understanding an IRS notice or letter you’ve received. Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

Note. You can use Schedule LEP (Form 1040), Request for Change in Language Prefer-ence, to state a preference to receive notices, letters, or other written communications from the IRS in an alternative language. You may not immediately receive written communications in the requested language. The IRS’s commitment to LEP taxpayers is part of a multi-year timeline that is scheduled to begin providing translations in 2023. You will continue to receive communi-cations, including notices and letters in English until they are translated to your preferred lan-guage.

Contacting your local IRS office. Keep in mind, many questions can be answered on IRS.gov without visiting an IRS TAC. Go to IRS.gov/LetUsHelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can’t be han-dled online or by phone. All TACs now provide service by appointment, so you’ll know in ad-vance that you can get the service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find the nearest TAC and to check hours, available services, and ap-pointment options. Or, on the IRS2Go app, un-der the Stay Connected tab, choose the Con-tact Us option and click on “Local Offices.”

The Taxpayer Advocate Service (TAS) Is Here To Help You

What Is TAS?

TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Their job is to ensure that every taxpayer is treated fairly and that you know and under-stand your rights under the Taxpayer Bill of Rights.

How Can You Learn About Your Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

What Can TAS Do for You?

TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do every-thing possible to resolve your issue. TAS can help you if:

Your problem is causing financial difficulty for you, your family, or your business;
You face (or your business is facing) an immediate threat of adverse action; or
You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

How Can You Reach TAS?

TAS has offices in every state, the District of Columbia, and Puerto Rico. Your local advo-cate’s number is in your local directory and at TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call them at 877-777-4778.

How Else Does TAS Help Taxpayers?

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, report it to them at IRS.gov/ SAMS.

TAS for Tax Professionals

TAS can provide a variety of information for tax professionals, including tax law updates and guidance, TAS programs, and ways to let TAS know about systemic problems you’ve seen in your practice.

Low Income Taxpayer Clinics (LITCs)

LITCs are independent from the IRS. LITCs represent individuals whose income is below a certain level and need to resolve tax problems with the IRS, such as audits, appeals, and tax collection disputes. In addition, LITCs can pro-vide information about taxpayer rights and re-sponsibilities in different languages for individu-als who speak English as a second language. Services are offered for free or a small fee for eligible taxpayers. To find an LITC near you, go to TaxpayerAdvocate.IRS.gov/about-us/Low-Income-Taxpayer-Clinics-LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List.

Glossary

Amortization: A ratable deduction	Depreciation: Ratable	deduction	due to its name, reputation, or any	Real property: Land and generally
for the cost of certain intangible	allowed over a number of years to		other factor.	anything erected on, growing on, or
property over the period specified	recover your basis in property that is		Intangible property: Property that	attached to land, for example, a
by law. Examples of costs that can	used more than 1 year for business			building.
be amortized are goodwill, agree-	or income producing purposes.		can't be perceived by the senses	Recapture: Amount of depreciation
ment not to compete, and research	Fair market value (FMV): FMV is		such as goodwill, patents, copy-
and mining exploration costs.			rights, etc.	or section 179 deduction that must
Business assets: Property used in	the price at which property would		Like-kind property: Items of prop-	be reported as ordinary income
	change hands between a buyer and			when property is sold at a gain.
the conduct of a trade or business,	a seller, neither having to buy or sell,		erty with the same nature or charac-	Section 179 deduction: This is a
such as business machinery and of-	and both having reasonable knowl-		ter. The grade or quality of the prop-
fice furniture.	edge of all necessary facts.		erties doesn't matter. Examples are	special	deduction	allowed	against
Capitalization: Adding costs, such	Going concern value: Going con-		two vacant plots of land.	the cost of certain property pur-
			Modified Accelerated Cost Re-	chased for use in the active conduct
as improvements, to the basis of as-	cern value is the additional value			of a trade or business.
sets.	that attaches to property because		covery System (MACRS) prop-	Section	197 intangibles: Certain
Depletion: Yearly deduction al-	the property is an integral part of an		erty: Buildings (and their structural
	ongoing business activity. It includes		components) and other tangible de-	intangibles held in connection with
lowed to recover your investment in	value based on the ability of a busi-		preciable property placed in service	the conduct of a trade or business or
minerals in place or standing timber.	ness to continue to function and		after 1986 that is used in a trade or	an activity entered into for profit, in-
To take the deduction, you must	generate income even though there		business or for the production of in-	cluding	goodwill,	going	concern
have the right to income from the ex-	is a change in ownership.		come.	value, patents, copyrights, formulas,
traction and sale of the minerals or	Goodwill: Goodwill is the value of a		Personal property: Property, such	franchises, trademarks, and trade
the cutting of the timber.				names.
	trade or business based on expec-		as machinery, equipment, or furni-
	ted continued customer	patronage	ture, that isn't real property.
Publication 551 (December 2022)							Page 13

Tangible property: This is prop- Unstated interest: The part of the an installment contract provides for erty that can be seen or touched, sales price treated as interest when little or no interest. such as furniture and buildings.

Page 14Publication 551 (December 2022)

	To help us develop a more useful index, please let us know if you have ideas for index entries.

Index
	See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A

Adjusted basis:

Adoption tax benefits 6

Assessment for local

improvements 5

Canceled debt 6

Casualty and theft losses 5

Credit for qualified electric

vehicles 5

Decreases to 5

Depreciation 6

Easements 5

Employer-provided child care 6

Example 6

Casualty and theft losses 5

Change to business use 10

Community property 10

Constructing assets 3

Copyrights 4

Cost basis:

Allocating basis 4

Assumption of mortgage 3

Capitalized costs 3, 5

Loans, low or no interest 2

Real estate taxes 2

Real property 2

Settlement costs (fees) 2

Cost Basis 2

F

Franchises 4

G

Gain from sale of home 6

Gifts, property received 9

Group of assets acquired 4

I

Inherited property 10

Intangible assets 4

Involuntary exchanges 7

Property received for services:

Bargain purchases 7

Fair market value 7

Restricted property 7

Property transferred from a spouse 9

Publications (See Tax help)

R

Real estate taxes 2

Real property 2

S

Settlement costs (fees) 2

Gain from sale of home 6

Gas-guzzler tax 6

Increases to 5

Section 179 deduction 6

Subsidies for energy

conservation 6 Adoption tax benefits 6 Allocating basis 4 Assistance (See Tax help) Assumption of mortgage 3

B

Business acquired 4 Business assets 3

C

Canceled debt 6

D

L

Decreases to basis 5

Land and buildings 4

Demolition of building

4

Loans, low or no interest 2

Depreciation 6

N

E

Nontaxable exchanges:

Easements 5

Like-kind 8

Employer-provided child care

6

Partial 8

Exchanges:

Involuntary

7

P

Like-kind 8

Nontaxable

8

Partially nontaxable

Partial business

use of

exchanges

8

property

9

Patents

4

Taxable 7

Points

3

Property

changed to business

use 10

Property received as a gift 9

Special-use valuation 10

Spouse, property transferred from 9

Stocks and bonds 2 Subdivided lots 4

T

Tax help 11

Taxable exchanges 7

Trade or business acquired 4 Trademarks and trade names 4

Trading property (see Exchanges) 7

U

Uniform capitalization rules: Activities subject to the rules 3 Exceptions 3

Publication 551 (December 2022)Page 15

IRS Releases Publication 551 (12/2022), Basis of Assets